By Kenrick Cai, Deborah Mary Sophia
(Reuters) -Alphabet said on Tuesday it will spend $75 billion on its AI buildout this year, 29% more than Wall Street expected, and investors signaled disappointment at a missed cloud revenue target and began showing impatience over profitability.
Shares of the Google parent fell 9% in extended trading. Alphabet has gained about 9% so far this year.
Wall Street had been expecting 2025 capital expenditures of about $58 billion, according to LSEG data. That would have marked a modest increase over the $52.5 billion spending in 2024.
CEO Sundar Pichai defended the dramatic increase on a conference call with analysts, who are raising new questions about capital spending by Google and U.S. rivals following the emergence of China’s DeepSeek, which offers cut-rate AI. He said Google’s Gemini family of AI models is comparable in efficiency to DeepSeek.
“The cost of actually using (AI) is going to keep coming down, which will make more use cases feasible,” Pichai said. “The opportunity space is as big as it comes, and that’s why you’re seeing us invest to meet that moment.” Still, the company posted a deceleration in cloud revenue growth.
Alphabet has been spending heavily on an infrastructure development to support AI research and integration into products such as search and cloud services. The majority of capex for 2025 would go into building servers and data centers, Chief Financial Officer Anat Ashkenazi said on the call. She attributed the fourth-quarter results in part to capacity constraints on cloud AI offerings.
Alphabet plans to spend $16 billion to $18 billion in the first quarter, a far bigger number than the roughly $6 million DeepSeek said it spent on the final training run to develop its AI model.
To be sure, developers at leading U.S. AI firms said the total training cost was likely magnitudes larger. But revelations around DeepSeek’s training cost in January shocked tech stocks, contributing to Nvidia’s record one-day drop of $593 billion in market value.
“It’s very hard to defend Google after the earnings report,” said Dave Wagner, portfolio manager at Aptus Capital Advisors, which holds Alphabet stock. He pointed to the cloud revenue miss and Google’s poor track record on utilizing cash for profitability.
“DeepSeek has started to teach the market that maybe some things can be done a little bit more efficiently,” he said. “Maybe we’re starting to see the market dislike the continued increase in capex.”
